A policymaker suggests the ECB may raise rates in June to counter inflation risks and maintain market credibility.
European Central Bank policymaker Olli Rehn indicated the bank may raise interest rates in June to address credibility concerns over inflation. The move aligns with an adverse scenario where tighter policy is needed to prevent inflation from accelerating further.
Markets have already priced in rate hikes, with expectations of 25 bps or 50 bps adjustments. Rehn noted wage growth is moderating but warned of second-round inflation effects if the ECB fails to act decisively. Current conditions suggest even a 50 bps hike may only return rates to marginally restrictive levels.
The ECB faces a balancing act, as delaying hikes could loosen financial conditions and risk higher inflation. Policymakers are particularly wary of geopolitical risks, including the Middle East conflict, exacerbating price pressures.